Why you need to tear up your equal remuneration policy tomorrow and start being unfair.

Earlier this year, Harvard Business Review and Bain published research following analysis of over 25 global businesses and 300 senior executives – you can find the HBR article summarising the findings here. The analysis determined that the distinction between exceptional businesses from the rest is not the amount of star talent in those businesses but how that star talent is deployed and managed.

The specific findings about how star talent should be identified and managed in businesses for strategic advantage rail against some commonly held talent management beliefs, particularly in Australia. In short, the theory being alluded to in the latest research is if you put your A players, in your A positions, reward and recognise their role as carrying more strategic importance in your business to your ‘B’ roles and drive your ‘C’ players and ‘C’ roles out of your business altogether via outsourcing or role redundancy, you achieve superior business performance, relative to your peers.

While the latest research by Bain on the importance of A-positions and A-player deployment to those roles might seem new (even the author of the article expresses surprise at the findings), the theory is not. It confirms a theory proposed by HR professors Mark Huselid, Richard Beatty and Brian Becker back in 2005 in their paper: “A Players” or “A Positions”? – The Strategic Logic of Workforce Management.

Some might suggest the ‘theory’ seems more common sense than revolutionary: surely if you put your best people in your most important positions you’ll get better results? However, it is much more nuanced than that.

So, what is the ‘A-Positions’ theory and how is it applied?

In summary, the theory involves the following steps:

settle your corporate strategy

identify your ‘A-positions’ relative to that strategy

identify your ‘A-players’, put them in your A-positions, move your B-players out of A-positions or improve their performance. Drive C players and C positions out of your business (where possible)

manage your A-players and A-positions in a way that clearly acknowledges their scarcity and importance to the business, ensuring B positions support A-positions and develop some ‘bench strength’ of future A-players

Each are explained below.

First, settle your corporate strategy. The best workforce management approach will achieve little if the corporate strategy is a poor one. Excellent corporate strategy development is another topic in itself.

Second, once you have formulated your winning strategy, identify your ‘A-positions’ relative to that strategy.

Put another way, ask yourself the question: what are the positions in my business that are most crucial to the successful execution of our corporate strategy?

Huselid et al observed that A-positions can exist at any level in the organisation. Often hierarchy and existing remuneration levels for roles are misleading and have nothing to do with A-position identification. They use the example of Nordstrom versus Walmart to illustrate this point eloquently.

Nordstrom apparently adopts personalised service and customer advice as the strategy used to fuel customer satisfaction and in turn growth, whilst Costco uses the strategy of low prices and huge product availability to produce the same result; this translates into an ‘A-position’ at Nordstrom of its front-line sales associate whereas at Costco the purchasing manager is one of its A-positions and the sales associate position is hardly relevant at all. Because they adopt different strategies they have very different ‘A-positions’ as their focal points for star talent necessary to deliver on that strategy. This example also demonstrates the point that ‘A-positions’ are not always ‘executive’ level roles.

Hueslid et al further observed that in terms of identifying A-positions, they are generally:
•not common (often less than 20% of the workforce),
•the focal point of value creation (and potential for value destruction if done poorly) when delivering on the corporate strategy; and
•not identified by how difficult they are to fill (scarcity of talent does not equate to an A-position) but rather a high degree of performance variability.

They illustrate the last point by another example, the role of an airline pilot. Whilst strategically important (a poor safety record could devastate an airline), typically the role of an airline pilot exhibits a low degree of relative performance variability (most pilots are well trained and the systems in place within the role delivers high performance with low variability). The consequence is that the airline pilot role is not an A-position for most airlines because it doesn’t qualify on both the strategic impact and performance variability criteria. It would qualify as a B-position.

So, once you’ve settled your corporate strategy, look for your A-positions by searching for positions in your business that have a high strategic impact (relative to your settled corporate strategy) and also exhibit high levels of performance variability among those placed in the role.

Third, identify your ‘A-players’, put them in your A-positions, move your B-players out of A-positions or improve their performance. Drive C players and C positions out of your business (where possible).

A-players, according to Bain’s analysis, are high performers who also exhibit high-potential. They are often versatile or ‘fungible’, capable of being moved into different A-positions and performing well in them, capable of plugging talent shortages.

Once your A-players are identified (a talent identification exercise) Huselid et al concluded you should move those employees into A-positions in your business urgently. You should then move any B-players out of A-positions and ensure B-position roles, whilst not prioritised, are not neglected; because whilst they might not have the greatest strategic impact if they are done well, B-positions usually destroy value if performed poorly.

C-positions are the non-strategic roles where replacements are capable of being easily found for the position and the market sets the remuneration level for the role. Huselid et al observed that it may ultimately be found that outsourcing or removing the role altogether is possible, saving cost.

Last, manage your A-players and A-positions in a way that clearly acknowledges their scarcity and importance to the business, ensuring B positions support A-positions and develop some ‘bench strength’ of future A-players.

According to Huselid et al’s theory, management of A-players involves the crucial step of making clear to others within your organisation, expressly, the importance of the A-positions and the performance of the A-players in those positions. It is also vital to ensure that others within the organisation understand the importance of delivering on the organisation’s strategy and to articulate why A-players must be treated differently to see that occur.

Once that is done, investment should then be made disproportionately in A-roles and A-player professional development. Evaluation should be carefully carried out on A-player performance and each A-player remunerated well. Hueslid et al demonstrated this by describing IBM’s remuneration and talent development program where talent and leadership development programs are heavily focused on the company’s A-players and A-player talent pipeline and around only 50% of the workforce receive pay rises each year, with the best performers receiving roughly 3 times more than ‘strong performers’.

Bain and HBR’s summary of their analysis did not comment on the role of compensation within the firms they analysed, focusing instead on stressing the importance of ensuring A-players are deployed into A-positions as the key differentiator. However, I suggest both deployment and remuneration are mutually dependant on ensuring A-players are retained and happy particularly in today’s highly mobile talent marketplace where great talent is usually well aware of the ongoing war for talent occurring around them and their capacity to move.

Excellent remuneration, great development/career progression opportunities, appropriate recognition for exceptional performance and feeling part of something meaningful tends to be necessary to avoid top talent leaving for elsewhere, which the research shows is a major impediment to high performance and is no doubt stifling to businesses experiencing on-going talent drain.

The washup

It is not possible to put great talent in every role in a business.

Exceptional talent comes at a cost and trade-offs must be made. Roles must be prioritised (A-positions) and development and retention of talent (A-players) for key strategic positions made a focus, at least for those businesses that want to outperform their peers.

If you feel a sense of discomfort about the notion of discriminating among roles (and consequently staff) based on perceived strategic importance, your instinctual reaction will probably not be uncommon in Australia. Culturally, egalitarianism is a championed and even admirably held social ideal in Australia. This remains the case despite some evidence to suggest it may be more of an ideal as opposed to a reality. The challenge in devising an excellent workforce strategy linked to corporate strategy is to first recognise this propensity to feel culturally hard-wired to that predisposition and then move the discussion to the point where the theory can be logically and carefully considered by the executive leadership team. This should involve some consideration of the consequences of not adopting a more deliberate, focused and strategic approach to workforce management, particularly considering the results generated by those that are adopting this approach as revealed by the research.

My personal belief is that, at least presently in the Australian market, a balance needs to be struck somewhere between the ruthless application of Huselid et al’s above theory with the maintenance of a corporate culture that people want to turn up to work for but that the pendulum could be swung closer towards a more discerning workforce management strategy bearing some resemblance to the A-positions theory in many businesses looking to improve performance. The requirement and urgency for such change and the degree to which the dial needs to be moved closer to the A-positions concept will depend on the competitive pressures within the applicable industry, the performance expectations of the business’s owners and the degree to which that business (like most) is dependent on talent to execute its corporate strategy well.

At the very least, the A-positions theory is an excellent way to bring senior executive teams together to observe and provoke thinking about the correlation which exists between selection and execution of a winning business strategy and strategic talent/workforce management in the modern era of ‘work’. Certainly, as we lean into the ‘knowledge era’ of human endeavour, increasingly participate in a highly globalised workforce, engage with a transient talent base and participate in the ever increasing ‘war for talent’, a company’s capacity to attract, retain, smartly deploy and manage its star talent may well prove the difference.

Author: Adam Merlehan

Adam is the Managing Director and Founder of Merlehan Group. A formidable top-tier lawyer and strategist, Adam formed Australia’s first truly multidisciplinary business advisory and law firm after retiring from equity partnership having spent more than a decade with one of Australia's largest international law firms. Merlehan Group brings together leading talent across business strategy, implementation, law and capital & infrastructure project delivery support, focused on seeing our clients succeed and sustain their competitive advantage.